Sharjah-based and Oslo-listed Maritime Industrial Services (MIS) has cancelled its $320 million (Dh1.17bn) arbitration case against Mosvold Middle East Jackup (Meju), deciding on an amicable settlement, Emirates Business has learnt.
The two are signing a new contract today, which will see MIS completing both rigs, but with a new ownership structure. It was resolved that the construction of the $160m Hull 106 would be started immediately, with completion slated in the first quarter of next year.
Meju's earlier down payment of $100m for two rigs - Hull 106 and Hull 108 - will be assigned solely to Hull 106. The $60m balance will be paid in two equal tranches -the first $30m is to be paid next month, and the remaining $30m is to be paid upon delivery or at Meju's option, subject to interest and an arrangement fee, but no later than June 30, 2011.
The rights and legal titles for Hull 108, on the other hand, will be transferred to MIS, which will complete the construction on its own account. Construction will resume in the third quarter of this year with completion slated for the third quarter of 2011.
MIS is looking at operating this rig and is now in discussions with prospective partners who can provide operational and financial support.
"We had a lengthy and costly arbitration. Recently, we began constructive dialogues to find a solution, which we have done," Kevin Hudson, Managing Director of MIS, told this newspaper.
The cost of arbitration and the suspended revenue inflows from these rigs have caused MIS' first quarterly net income to drop 25 per cent and five per cent compared to Q1 and Q4 2009, respectively. MIS had agreed in July 2008 to construct and deliver two offshore jackup drilling rigs worth $335m to Meju, a subsidiary of the Norwegian Mosvold Shipping Holding. Hulls 106 and 108 were scheduled to be delivered in December 2009 and March 2010, respectively.
What seemed to be a smooth transaction turned sour at the height of the global financial crisis. Meju moved to terminate the contract on grounds that the rigs under construction did not meet the technical specification included in the contract.
MIS referred this matter to arbitration, and in November, an initial hearing was convened to determine MIS application for a partial final award in respect of the second milestone and an order for the sale of rigs.
The arbitration panel has confirmed the order of the sale of rigs, with the sales proceeds to be held in escrow, pending a further order from the arbitrators. MIS also had to write off its $10m investment in Meju.
"Solving problems amicably is a lot better than disputes," Hudson said. "Meju felt there were technical problems. We convinced them those problems don't exist and created a deal where we can have return on our investments."
By Karen Remo-Listana
© Emirates Business 24/7 2010
